Modi win in UP may hurt banks on loan waiver promise, as markets shrug off exit poll gains

While the exit poll results released yesterday predict BJP to be in a comfortable position in the crucial state of Uttar Pradesh, investors might still want to be cautious against buying heavily into the stock markets, especially the sectors that may suffer due to tall poll promises which may strain businesses.

Analysts caution against letting the sentiments loose into the markets and buying heavily, as any rally based on election results would most likely be short-lived. (Image: PTI)

While stock markets cheered the UP election exit poll results in Friday’s early morning trade, the consensus is that a possible BJP win in the crucial state might not all be all that positive for Indian stocks, as certain sectors such as banks may suffer due to the party’s tall poll promises including waiving farm loans.

If the BJP wins in UP, it would be at a huge cost to the party as some of the promises made are against its whole philosophy of liberal reforms-based economic push, Dimension Consulting’s CEO Ajay Srivastava said in an interview to ET Now.

The promises BJP made in an effort to win seats include waiving farm loans, which, if it comes through, may further pressurise the balance sheets of some public sector banks. Also, further upside to regional sugar companies may also be limited and slow-paced from hereon, Srivastava said.

Yesterday, exit polls gave BJP a clear edge in the heartland state of Uttar Pradesh though the number of seats for the party swung wildly. At least five polls predicted that the BJP would emerge as the single largest party and may come close to the halfway mark of 202 in a House of 403, if it does not get a clear majority along with its allies. Two exit polls predicted a comfortable majority for the BJP, with one estimating that it could get as many as 285 seats.

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Analysts also caution against letting the sentiments loose into the markets and buying heavily, as any rally based on election results would most likely be short-lived. The markets would remain focussed on economic reforms rather than populist measures, Kotak Securities MD Nilesh Shah said in an interview to CNBC TV18.

Post any short-term movement, the markets would likely come back to the usual trajectory, and would continue to be guided by the fundamentals, such as progress of the economic reforms, analysts say. I don’t think (BJP) winning or losing UP would have a significant impact on the market beyond a week or two, Edelweiss Securities CEO Vikas Khemani said to CNBC TV18. It is going to be a short-term movement and the market will go back to normal once the event is over, Khemani added.

Others also advise investors to remain cautious, at least till the final numbers are announced.

Angel Broking, in a technical analysis note, said that while it expects the market to break out soon, investors must take precautions against possible shocks from the final election results.

“Tomorrow being the last day before the actual outcome, we would expect some volatility in the market,” Sameet Chavan, Chief Analyst- Technical & Derivatives, Angel Broking, said in a note. “Hence, it’s advisable to avoid the momentum trading as the market may give few whipsaws. Rather one should stick with a ‘Buy on dips’ strategy for a near to medium term perspective,” Chavan added.

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The fundamentals guiding the Indian stock markets are looking strong, which should support in achieving new highs and earning decent returns to investors in medium-long term. Being the single-largest party will reinforce BJP’s strong position and with the falling crude oil prices and positives of the demonetisation Indian markets will regain its position of outperformance in the second half of the current year, Sanjiv Bhasin, Executive VP- Market & Corporate Affairs, IIFL, said in an interview to CNBC TV18.


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